August 27, 2014 § Leave a comment
The most far-reaching accounting standard in decades was issued this past May when the Financial Accounting Standards Board (FASB) released a new accounting standard on revenue recognition. Prior to this new standard, there were complex and differing revenue recognition rules for various industries or transactions. The new standard is principles-based, requiring each customer contract to be analyzed to determine the obligations or promises covered by the contract. The sales price is then allocated to each of those promises and revenue is recognized as each performance obligation is met. Here is a simple example:
A customer buys a sandwich for $6.00, but also receives a stamp where when the customer has 10 stamps he receives a free sandwich. In this case, a portion of the $6.00 purchased sandwich is immediately recognized as revenue, while the portion of the $6.00 price relating to the value of the future “free” sandwich stamp is deferred. The revenue portion relating to the future free sandwich is not recognized until the customer later redeems 10 stamps for a free sandwich.
While the new standard will likely impact financial reporting for all organizations (public, private and not-for-profit), there are certain industries that will see major changes. Construction contractors will be moving away from percentage completion revenue recognition models to new models. Healthcare professionals will need to consider the impact of follow-up care on revenue recognition timing. Companies with customer loyalty programs will need to determine the portion of the sales price that needs to be allocated to the value of those loyalty rewards.
Between now and the implementation date (for annual reporting periods beginning after December 15, 2017), we will be monitoring specific industry implementation guidance that is being developed by the FASB, training our professional staff on the details of the new standard and then meeting with clients to determine the possible impact on their revenue recognition.
This new revenue standard will not significantly impact clients who report revenues on the cash basis or tax basis of accounting.
Please consider this new accounting standard if your business has contracts or sales agreements that contain multiple performance obligations. If you have such agreements, please contact us to discuss the possible impact of this new accounting standard on your revenue recognition timing.
August 13, 2014 § Leave a comment
Football season is just around the corner. My wife may not agree with this assessment, but in my humble opinion, football season is one of the best times of the year. Even if you don’t care for football, there are many life lessons that can be learned from the game. Here are a few to think about.
Football requires a pretty unique brand of teamwork. When you’re a part of a football team, understanding your role and that of your teammate is critical. Trusting them to do their job is of utmost importance. The emotional ups and downs that a team will experience help to build trust over time. People who work together will win.
I remember when I got my first football playbook (Stuart Junior High – many years ago) I was struck by the fact that every play in the playbook is designed to score a touchdown. I had never thought of it that way before. From the simplest play to the most complicated, every play is designed to score a touchdown. Our coach told us that your execution of that play determines whether or not that is true. People make plans, both good and bad, in their life. Success is rarely determined by a plan, it is always determined by how well someone executes the plan. As with any team, everyone doing their job to perfection is what determines success.
In the game of football, you learn that you don’t win on talent alone. Almost always it is the desire to win that will determine the final outcome. You cannot take a shortcut to becoming the best at whatever it is that you do. Success takes work, desire, and a drive to win.
Legendary Coach Vince Lombardi once said, “Winning is Everything.” In a lesser-known quote from Coach Lombardi, he later recanted that statement and went on to say, “Winning isn’t everything. Making the effort to win is everything. The price of success is hard work, dedication to the job at hand, and the determination that whether we win or lose, we have applied the best of ourselves to the task at hand.”
Enjoy the rest of your summer – knowing that football season is almost here!